Buy Sovereign Gold Bonds Any Day You Wish To

To invest in the Gold Bonds, people often wait for the fresh Public Issue of Sovereign Gold Bonds by the RBI.What most of them forget is that, just like the equity shares, there is a secondary market for sovereign gold bonds too. The previous issues of such gold bonds are being traded every day, both on the BSE (Bombay Stock Exchange) and NSE (National Stock Exchange).So, as and when you have the surplus money earmarked for investment in gold, you can do so any business day... at the click of the mouse.There is absolutely no difference in buying sovereign gold bonds from the secondary or the primary market (Important: But, as discussed later, there is a difference when it comes to selling on the stock exchange vis-a-vis waiting until maturity.)As often discussed:One. Gold is not a productive investment. So ideally one should keep one's exposure to gold at maximum 5-10% of the total portfolio.Two. Though most popular, buying physical gold (coins, bars or jewellery) is the WORST form of gold investment. Besides lack of transparency in gold prices and gold purity, making charges in jewellery are terribly high. This naturally brings down your overall gains.Three. Paper or electronic gold — Sovereign Gold Bond or Gold ETF — is any day a far better option for investing in gold.

Don't wait for the Public Issue. Buy Sovereign Gold Bonds any time.

Four. Between gold bond and gold ETF, gold bond is better as (i) it earns interest, with no interest on gold ETFs, (ii) you pay zero tax on gold bond if held until maturity, whereas capital gains on gold ETF are taxable and (iii) there are nil charges in holding gold bonds, whereas you have to pay annual fund management charges on gold ETF.The taxation angle is discussed in more details at the end.Five. However, liquidity of gold ETFs is far better than gold bonds. As seen from the trading data of various tranches of gold bonds given below, the daily traded volume is minuscule.

Sovereign Gold Bonds 2.75% NOV 2023 Tr-I

Sovereign Gold Bonds 2.75% MAR 2024 Tr-III

Sovereign Gold Bonds 2.75% SEP 2024 Tr-V

Sovereign Gold Bonds 2.50% MAR 2025 Tr-VII

Hence, if you can wait until maturity, buy gold bonds. But if you want high liquidity on your investment in gold, gold ETFs would be a better choice.Six. Gold ETF has one other advantage — there is no limit on the investment (unlike 500 gm max in sovereign gold bonds)For a more detailed discussion on this Bond vs ETF debate, do read my earlier blog post Gold Bond or Gold ETF... Which option wins?.NOTE : Taxation on Sovereign Gold Bondsa. Interest income is taxable as per IT Act b. Capital Gains on redemption (when the Bonds are held till maturity) is exempt from tax (only for individual investors)c. Capital Gains on transfer (when the Bonds are sold in the secondary market) is eligible for indexation benefit, if the holding period exceeds 3 years.d. If held for less than 3 years, it becomes Short Term Capital Gains, which is added to your annual income and taxed as per your marginal income tax slab rate.[This is why, at the beginning of this article, I had mentioned that difference between primary and secondary market is at the time of selling. Selling in the secondary market attracts capital gains tax. Whereas, holding the gold bonds until maturity, and redeeming it with the RBI, attracts NIL capital gains tax.] Meanwhile, unlike gold bonds, Gold ETF and Physical Gold are NOT eligible for any such tax exemption. Long Term and Short Term Capital Gains are taxed as per aforesaid points (c) and (d) respectively. For other important rules and regulations, applicable on the sovereign gold bonds, read Sovereign Gold Bonds 2017-18 – Series I : Issue Highlights.